Industry experts have raised concerns about EigenLayer, the largest re-staking protocol on Ethereum in terms of Total Value Locked (TVL), facing a potential yield crisis. Chudnov from 3Jane exchange pointed out that EigenLayer's rapid growth in TVL might exceed its Actively Verified Services (AVS), resulting in a considerable decrease in yields.
Significant Insights from a Leading Source
In a recent post dated April 22, Chudnov highlighted that EigenLayer's TVL has surpassed $15 billion, while the actual security requirements for AVS could be less than 10% of this amount, potentially triggering a yield collapse. EigenLayer made an announcement on April 16, removing all restrictions on liquid staking tokens (LSTs) after being launched on the mainnet on April 10.
When users stake an LST using EigenLayer, the tokens are automatically sent to a node operator, who utilizes the deposits to secure an AVS on the platform and receives staking rewards. A portion of these rewards is then given back to the user.
However, Chudnov expressed concerns that the security required for AVS in the protocol is significantly lower than the amount staked, which could lead to future complications:
“The issue is that none of the AVSs will need security even close to $1.5 billion, let alone $15 billion. The main purpose of Proof-of-Stake is to have the stake value higher than the potential profit from dishonest behavior by the validator.”
Overview of EigenLayer
EigenLayer, following the Lido staking protocol, stands as the second-largest protocol in the Ethereum ecosystem. DefiLlama's blockchain data analysis indicated that EigenLayer's TVL surged by 16% last month to reach $14.15 billion. With altcoin prices declining, the challenge might escalate since AVSs are discouraged from holding excessive on-chain capital. One potential solution could involve launching a series of tokens temporarily to raise security budget requirements, akin to discarding the box.
Nevertheless, establishing deeper integration of EigenLayer within the decentralized finance ecosystem and introducing additional benefits for LSTs could provide a lasting remedy. Chudnov summarized the situation by stating:
“If the EigenLayer ecosystem can embed itself more deeply into the DeFi ecosystem through financial primitive elements, then this becomes a much more defensible moat and gives AVS more time to solve issues well below cost.”
This article was originally published on COINTURK NEWS: EigenLayer Facing Significant Yield Crisis in Ethereum Ecosystem
